Affirm Introduces a Different Type of Credit--With No Card

Want credit without the credit card debt? Online shopping with Affirm, an alternative credit product can make that possible.

Affirm is a fintech company that's been around for a little over two years. Founded by PayPal co-founder Max Levchin, it's designed to allow consumers access to only the amount of credit that they need at a specific moment.

Most credit cards are based around what's called revolving credit. The financial institution that approves your credit card account gives you a credit limit, which is the maximum amount of money they'll let you borrow. As you pay down your outstanding debt, you have that amount of money to spend again.

Revolving credit lines require financial discipline, or it can be easy to think that you have a lot of money at your fingertips, only to find yourself up to your eyeballs in credit card debt and facing a long road toward being debt-free.

Levchin understands how easy it can be for people to fall into the credit card debt trap, yet still need access to loans to make big-ticket purchases. Millennials in particular don't necessarily have much credit, preferring instead to rely on debit cards, which don't always allow consumers to make larger purchases.

"Credit cards continue to be shunned by millennials, however we’re showing that these same consumers still want the benefits of credit — they just want it to be transparent, fair and honest with no surprises," said Levchin in a recent press release. "Affirm is opening up responsible borrowing to a much wider pool of consumers."

Affirm is a lender that offers credit at the point of purchase. It's partnered with over 750 merchants, which, according to its website, are a mix of both online and offline stores. When you checkout, you can use "Pay with Affirm" as an option. Affirm will then take some personal information and approve you for a loan in real time, and that loan will have an APR of between 10 and 30 percent based on your current credit history and other

You can choose to pay off the purchase in three, six or twelve months, although those terms may vary depending on the merchant and how much you want the loan to be--it's unlikely that small amounts can be repaid over a long time period. Once you're approved for the amount, the technology will show you exactly how much your payments will be, including interest. This true cost transparency is a feature Affirm boasts it has versus traditional credit card issuers.

Every time you want to make a purchase using Affirm, you'll get approved for that particular loan, so it's not like you'll have an actual credit card or account number to remember. Affirm doesn't always make loans for the full amount of a purchase. If the loan approval is only for part of a purchase, you'll have to pay the remainder with a debit card.

Each purchase is treated as a separate installment loan. To repay the loan, you make payments through your account on Affirm using a debit card, bank transfer or check.

Affirm doesn't charge a prepayment penalty, so if you have the cash to pay off the credit early, you can do so without any repercussion. Affirm will also refund you the difference between the interest charges that it quoted at the time of the loan and the actual finance charges assessed during the repayment period, if you pay the loan back early.

One other benefit the company touts is no late fees, so if you can't make a payment on time, you won't be charged additional money. You just pay it back when you can. Late payments can affect your ability to get future loans through Affirm, and it can have a negative effect on your credit score.

Affirm does reports your repayment history to Experian, so this can be a tool to improve your credit score. The company plans to add other credit bureau reporting opportunities in the future.

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